The Pullback That’s Always Coming

Wall Street CEOs Flag High Market Valuations, Pullback Risk

(Bloomberg) -- Wall Street chief executives said investors should brace for an equity market drop of more than 10% in the next 12 to 24 months.

This is the headline from Bloomberg, but every news outlet has a nearly identical story:

Source: Google

They are the perfect headlines.

• Scary – nobody wants to lose money.

• Authoritative – these are direct quotes from CEOs of Wall Street banks.

• Timely – the market seems ready for something bad to happen.

But these headlines all lack context. The truth is, Wall Street CEOs expect a 10% pullback in the next 12 to 24 months because 10% pullbacks happen all the time.

Look at the above chart and consider this:

• The S&P is up roughly 17% year to date, but was down almost 20% in April

• In 2024 the S&P 500 finished up 23% despite an 8% decline.

• In 2023 it finished up 24% despite a 10% decline.

• In 2020 we finished up 16% despite a 34% decline.

• The average peak-to-trough decline experienced in any given year is 14%.

So yes, we’ll likely see a pullback. We always do. But if history is any guide, it won’t stop long-term investors from being rewarded — unless they let the headlines talk them out of staying the course.

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Personal Note:

This week, J turned 11 and wanted a party at the Go-Kart/Laser Tag place.

My oldest ran his first cross-country race.

Both events were a great success.